When it comes to taxes, America is living in the past – and it’s costing us jobs. The nonpartisan Tax Foundation estimates our existing tax code costs American workers nearly 2 million jobs. The group, which has analyzed every tax proposal under the sun, confirms what most Americans already know: Our tax code is holding us back.
The current system for taxing businesses in the United States is not only burdensome; it’s also antiquated. At 35 percent, our corporate income tax rate is the highest in the developed world, higher than all of our global competitors. We make it more expensive to do business in the U.S. than virtually anywhere else on the planet – and we’re making it easier for American companies to send jobs overseas. The existing tax code imposes high costs on businesses and workers alike.
There is already a general consensus among employers and leaders in Congress that a 20 percent tax rate would put us on more even footing with other countries. The Tax Foundation estimates that such a rate reduction would kick start the American economy, boosting the gross domestic product by 3.4 percent annually over the first decade. The simple act of lowering our corporate tax rate to a level on par with other countries would dramatically increase wages and hours worked – the equivalent of 650,000 jobs.
For any conservative, a 20 percent tax rate and hundreds of thousands of new jobs amounts to a dream come true. However, this dream bumps up against a hard reality: Congress will only pass tax reform if it can offset much of the cost of that lost revenue. More importantly, just cutting the rate won’t solve a fundamental imbalance embedded in our tax code. The existing code creates an unfair incentive for goods and services produced overseas, at the expense of domestic producers and, more importantly, American workers.
Enter the House Republicans’ “A Better Way For Tax Reform” Blueprint. The plan lowers rates for families and small businesses. The centerpiece of the Blueprint is a 20 percent corporate tax rate. And the proposal meets the requirement of balancing over the first decade. To top it off, the Tax Foundation says the Blueprint as a whole will grow the U.S. economy by over 9 percent and create the equivalent of 1.7 million new jobs.
At the moment, the House Blueprint also happens to be the only viable proposal on the table that will accomplish the goal of conservative, pro-growth tax reform.
Up to this point, debate about the House Blueprint has been largely defined by a highly technical term – “border adjustability” – that obscures the simplicity of the proposal and its importance in helping American workers compete with their foreign counterparts. with other countries. Within the Blueprint is an important provision that goes by the technical term “border adjustability.”
Unlike most of our global competitors, the United States still allows companies that import foreign-made goods into the U.S. to deduct those costs, while imposing a 35 percent tax on the foreign profits of American companies that do business in other countries. The United States is one of the last countries in the developed world to tax businesses on their location, not the location of their sales. Regardless of where goods and products are sold, the government takes 35 percent of any profits that return to the United States.
This results in an unfair tax on American companies that sell goods or services abroad, otherwise know as the Made In America Tax. We effectively reward companies that import cheap foreign goods, while making it harder for American businesses to both operate here at home and sell their products abroad.
The House Blueprint ends this Made In America Tax, which has devastated American manufacturing, encouraged companies to ship jobs overseas, and rigged our entire economy in favor of foreign competition.
By modernizing our tax code, we can leapfrog other countries and end this penalty on domestic producers. Imports will be taxed at the new, lower rate of 20 percent. Exports, on the other hand, won’t be taxed at all. When this change is combined with provisions that will allow companies to immediately write off capital investments, American companies will finally have a leg up over foreign competitors and, for the first time in decades, an incentive to grow at home rather than abroad.
If Washington is truly serious about making America great again, this is where we need to start. Our current system of taxation puts us on the same dubious footing as Greece, Chile, and Mexico (and, with one exception, each has a lower corporate tax rate than the U.S.).
The moment for tax reform is here. Dropping the tax rate to 20 percent is a good start, but it is not adequate as a stand-alone measure. A broad tax reform package that repeals the Made In America Tax will take us from worst to first as a global competitor. We finally have the chance to implement a conservative economic agenda that will allow America to reclaim its place as the nation’s most powerful and innovative economy.
We should not let the moment pass.